Big State-owned Banks Suspend Sale of Fixed-term Deposits with Variable Rates Following New PBOC Interest Rate Rules


All of China’s big six state-owned banks have announced the suspension of the sale of deposit products that combine the features of demand and fixed-term deposits, following their categorisation as “non-compliant” by the Chinese central bank.

Starting from 1 January 2021 the big six state-owned banks in China will suspend the sale of “kaodang jixi” (靠档计息) (graded interest) deposit products, according to announcements recently made by each of these lenders.

These banks include Agricultural Bank of China (ABC), Bank of China (BOC), Bank of Communications (BOCOM), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Postal Savings Bank of China (PSBC).

In announcing their withdrawal of these products, all six of the big state-owned banks made reference to the “People’s Bank of China Notice Concerning Strengthening Deposit Rate Management” (中国人民银行关于加强存款利率管理的通知) issued by the Chinese central bank in March 2020.

The Notice categorises graded interest deposit products as “non-compliant,” and introduces stricter provisions for the management of interest rates offered by banks.

“Graded interest” deposit products are fixed-term deposits that permit withdrawal in advance, and provide different interest rates depending upon the time of withdrawal.

These interest rates are calculated on the basis the number of days that funds are stowed with the deposit product. For example, customers can withdraw funds from a one-year certificate of deposit (CD) five months in advance, in order to obtain the fixed-term interest for a six month period, plus one month of interest at a separate rate.

The products have proven highly popular with Chinese customers given that they combine the flexibility of demand deposits with the higher returns of fixed-term deposits. Customers that use these products are highly sensitive to interest rate shifts, however, creating the problem of large-scale withdrawals for banks whenever interest rates posted downward adjustments.